Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/306204
28 May | June | 2014 Commercial Investment Real Estate are starting to expand again, and they do have an appetite for newly built space as they continue to seek out new markets. "What we have seen, since allegedly coming out of the recession, is modest growth and optimism," says George C. Larsen, CCIM, a partner at Larsen Baker Development, Brokerage & Management in Tucson, Ariz. Retail development has been ongoing even through- out the recession, but that new construction has been very selective. Construction returned to Tucson in 2011, yet that activity has been driven entirely by single-user retail or restaurant expansion. Retailers such as Walmart, Conn's, and Guitar Center, along with the drugstores and dollar stores, have been adding new out- lets. For example, Larsen Baker is currently developing a new 40,000-square-foot store for Conn's, which will occupy the build- ing on a 10-year triple net lease. Restaurants such as Smashburger, Culver's, and Freddy's Frozen Custard & Steakburgers have built new stores in the Tucson area over the past few years. What is noticeably absent in Tucson, and in most markets around the country, is speculative retail development. Even sizable pre-leased shopping center projects are scarce. "It is fairly dif cult to get anyone other than restaurants to step up to the rents that are needed for new construction," Larsen says. Single-Use Activity Although outlet centers have enjoyed a building boom in recent years, much of the retail development occurring around the country has been fueled by single-use retail projects ranging from Wal- greens and Family Dollar to Walmart and Chick-f l-A. According to a ChainLinks Retail Advisors report published last fall, restau- rants and retailers were planning to open an estimated 38,000 new stores in the U.S. over the next 12 months. Restaurants accounted for a sizable amount of that growth with 44 percent or about 16,720 new stores. "We have actually seen a pretty big resurgence in new retailers coming into the marketplace," says Ira Korn, CCIM, a managing director and partner at Coldwell Banker Commercial Meridian in Rochester, N.Y. Field & Stream recently announced its plans to open a new store in Rochester and a new Costco is underway, marking the retailer's f rst store in Upstate New York. In addition, the North Face and L.L. Bean have both opened within the last 18 months. "We're also seeing the growth of a lot of quick-service restaurants," Korn says. Over the last 12 months, Dairy Queen, Sonic, and Corner Cafe among other quick-service restaurants have entered the market. Rochester is situated in Upstate New York along with Buf- falo and Syracuse. So, of entimes retailers will put one store in Rochester f rst to see if it works and then expand west to Buf alo or east to Syracuse. Retailers also like the city's stable economy. "T ere is still a lot of vacancy in the regional centers, especially the smaller ones," Korn says. T e market will have to absorb that vacancy before it sees any signif cant shopping center develop- ment. "I would say that we are at least three years out on that type of development," he adds. Retailers remain very cautious and thought- ful in their approach to new stores. T ey are looking to f ll in their existing footprint with new locations that have strong demograph- ics. As such, retail developers that are pushing forward with projects are sticking close to a sure thing — population densities. "You need a site that is in demand," says Chris Moe, CCIM, a partner at H.J. Develop- ment in Wayzata, Minn. T e f rm has a retail portfolio of about 1.2 million sf in the Twin Cities. Developers can't go too far out to an outer ring suburb and be able to attract ten- ants. "As soon as you get out of those top-tier trade areas, there is not going to be any new development for a while, because tenants are "We have actually seen a pretty big resurgence in new retailers coming into the marketplace." —Ira Korn, CCIM, a managing director and partner at Coldwell Banker Commercial Retail Rents and Vacancy Source: Reis 19.52 17.39 19.13 16.75 18.99 16.51 16.50 16.59 19.08 18.98 19.34 16.83 Vacancy Rate $ Psf 10 12 14 16 18 $20 2008 2009 2010 2011 2012 2013 13% 12 11 10 9 8 Asking Rent ($) Effective Rent ($) Vacancy Rate 2 6 - 3 1 F - R e t a i l P u s h - T i e g _ A l t . i n d d 2 8 26-31 F-Retail Push-Tieg_Alt.indd 28 4 / 2 9 / 1 4 2 : 4 9 P M 4/29/14 2:49 PM